Russia and Abu Dhabi funds team up for $2bn investment venture

Financial Times, 22.06.2013

The Russian Direct Investment Fund has teamed up with Abu Dhabi’s Mubadala Development Company to set up a $2bn investment venture.

RDIF, which manages $10bn and was set up by Vladimir Putin to promote private equity deals, and Mubadala, one of Abu Dhabi’s sovereign wealth funds, are each committing $1bn to pursue joint opportunities in Russia.

The majority of Mubadala’s pledges will be invested on a deal by deal basis while some of the capital will be invested as an automatic co-investment into RDIF deals. Mubadala had assets worth Dh202.8bn ($55bn) at the end of last year.

The announcement, made at a dinner on Thursday in St Petersburg attended by Mr Putin and 20 foreign investors, comes as the Russian president seeks to lure foreign capital to boost a slowing economy.

Kirill Dmitriev, the 38-year-old former Goldman Sachs banker who runs the RDIF, has sought to strike high profile agreements with powerful sovereign wealth funds to help the country surmount its reputation as a land of corruption, with a complex judicial system and volatile political environment.

Very few international buyout groups – apart from a few companies including Texas-based TPG, which owns St Petersburg-based retailer Lenta – have set up offices or conducted significant operations in Russia. Washington-based Carlyle shut its Moscow office in 2005 saying the returns were not worth the risks. The funds raised by homegrown private equity groups such as Moscow-based Baring Vostok, which is the largest of them, have remained a fraction of the size of the Russian economy.

“This is the largest commitment from the Middle East to invest in Russia,” Mr Dmitriev told the Financial Times. “This is also very significant for the private equity industry because it shows that more and more sovereign wealth funds are working together and investing directly together.”

Mr Dmitriev created a $2bn fund with China Investment Corp a year ago, and the Kuwait Investment Authority has agreed to commit $500m to a co-investment fund. In April, the RDIF created a $1bn Russian-Japanese fund with Japan Bank for International Cooperation along with state-backed bank Vnesheconombank.

Since its inception in 2011, RDIF has invested $600m of its own money alongside $2bn co-investments from other investors, Mr Dmitriev said.

Khaldoon al-Mubarak, chief executive of Mubadala, said: “Given the track record and calibre of the RDIF team we are confident that our collaboration will deliver long-term financial returns and development opportunities.”

RDIF’s holdings include a stake in Russian stock exchange Micex-RTS. Earlier this week, it said it invested alongside US tyremaker Titan International and JPMorgan’s One Equity Partner in Voltyre-Prom, an Ekaterinburg-based agricultural tyremaker. It teamed up in December with Baring Vostok and UFG Private Equity in purchasing a majority stake in Karo Film Group.